The S&P/ASX 200 Index (ASX: XJO) stock Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) could be a very useful pick for passive income. I think it's one of the leading ASX dividend shares out there.
This investment house has been operating for over 120 years – it has built a good reputation for resilience.
It's invested in a number of ASX shares like TPG Telecom Ltd (ASX: TPG), New Hope Corporation Limited (ASX: NHC), Macquarie Group Ltd (ASX: MQG) and Brickworks Limited (ASX: BKW).
Soul Pattinson receives dividends from its portfolio and passes on a lot of that passive income to investors in the form of a growing dividend.
The ASX 200 stock has grown its dividend every year since 2000, which is the longest growth streak on the ASX.
While it may not have the biggest dividend yield out there, it has a defensive portfolio of assets that Soul Pattinson believes can be a good source of dividend income. It's one of the biggest positions in my portfolio and I hope that it can continue to grow.
$20,000 of annual passive dividend income
In the FY23 half-year result, it grew its interim dividend by 24% to 36 cents per share. Its final ordinary dividend from FY22 was 43 cents per share. The current dividends amount to a total dividend of 79 cents per share.
At the current Soul Pattinson share price, it would be a grossed-up dividend yield of 3.6%.
To receive $20,000 of annual passive dividend income, I'd need to own 25,317 Soul Pattinson shares. Don't get me wrong, that's a large investment.
But, I think it's the type of investment where it could be a large position in someone's portfolio because it's very diversified. The ASX 200 stock is invested in blue chip ASX shares, small cap ASX shares, private businesses, structured loans, and property. Expanding its farmland investments has been a key focus over the past year or two.
According to Commsec, by FY25 it could pay an annual dividend per share of 91 cents. That would be a grossed-up dividend yield of 4.1%.
If investors focus on that potential FY25 payout, investors would 'only' need to own 21,978 Soul Pattinson shares.
Is the ASX 200 stock a good choice?
I think Soul Pattinson can provide investors with a very effective investment that delivers decent, but growing, dividends and hopefully achieves capital growth as it builds its investment portfolio.
In my opinion, I think Soul Pattinson shares are one of the easiest ways to generate passive income without having to worry about what it's doing.
If I had to put a large amount of money into one ASX 200 stock, Soul Pattinson would probably be at the top of my own shortlist because of its diversified portfolio and long-term track record.
